Turkey and Argentina will face a drastic contraction of their economies in the coming quarters amid a slowdown in growth among emerging markets, according to the report by Moody’s Investors Service. While fiscal tightening among major economies and geopolitical trade disputes continue to undermine global investment, Moody’s is a rather grim perspective on growth opportunities in emerging markets, such as Turkey and Argentina, which have a “relatively high exposure to external financing and this is why they are the most vulnerable”.
The Turkish economy is likely to shrink in the first half of next year, as weakening lira and rising borrowing costs affect the growth.
Turkish inflation has been gravitating at the fastest rate since President Recep Tayyip Erdogan took the power 15 years ago, while high borrowing costs distorted investors’ forecasts. Bilateral inflation, a steep rise in borrowing costs, and limited bank lending are likely to exacerbate the purchasing power of households, private consumption, as well as investment.
Moody’s expects Turkish inflation to remain double-digit in 2020. It accelerated to 25.2% in October, as weak lira continue to fuel price growth.
In terms of economic growth, the agency expects it to be 1.5% in 2018, but in 2019 forecasts for contraction of 2%.
With regard to Argentina, Moody’s points out that the economy will not return to growth before 2020 due to heavy monetary and fiscal consolidation within the country’s program with the International Monetary Fund (IMF). The expectations are that the economy shrinks by 2.5% this year and by 1.5% in the next.
As for inflation, it continues to grow in spite of the central bank’s measures, and it will take some time to feel the effects of the country’s new monetary framework. moody’s point out that inflation will gradually slow down to 20% by the end of 2020.